GOLDMAN SACHS RAISES NETFLIX’S RATING AND PRICE TARGET
Goldman Sachs upgraded Netflix from “Sell” to “Neutral” in a recent note, with a new price target of $400, signaling a potential downside of about 9% from current levels. Despite this, the bank expects significant growth in Netflix’s underlying business over the next two years.
The Turnaround in Netflix’s Performance
Goldman Sachs analyst Eric Sheridan stated that their previous “Sell” recommendation was based on concerns regarding post-pandemic subscriber growth, increased industry competition, potential pressure on subscriber additions, and volatile performance due to the password-sharing crackdown. However, Netflix’s stock has surged 135% since Goldman initiated the “Sell” recommendation, surpassing the S&P 500’s gains.
Successful Execution of the Password-Sharing Crackdown
Netflix’s management effectively implemented the password-sharing crackdown, which has prompted many users to start paying for the service. Combined with the introduction of a low-cost advertising tier, this initiative has resulted in fewer subscriber losses than anticipated.
Positive Growth Forecast
Sheridan estimates that if Netflix continues its strong performance, the company’s revenue could grow by 55% to approximately $49 billion by 2025. He also expects Netflix’s earnings per share to reach the $22-$27 range, compared to about $10 per share in 2022. This optimistic outlook is based on the assumption that Netflix can convert a significant portion of its estimated 100 million password sharers to paying customers.
Limited Visibility and Current Rating
Despite the positive outlook, Sheridan highlights the limited visibility into Netflix’s underlying business, leading to a current “Neutral” rating instead of a “Buy” rating from Goldman Sachs. While acknowledging the potential for outperformance in the coming quarters, the lack of clarity prevents a stronger recommendation.
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